11 December 2023 |

Spade Digs Into Credit Card Fraud

By Alex Johnson

Queen of Spades (19th century) by E. Le Tellier.

3 Fintech News Stories

#1: Spade Digs Into Credit Card Fraud

What happened?

Spade, a fintech infrastructure company focused on transaction enrichment, raised a Series A with an eye toward helping solve the problem of credit card fraud:

When we last reported on Spade earlier this year, the company raised $5 million to decipher the string of numbers and letters that card issuers use to authorize transactions in seconds.

When a card is swiped or typed, the issuer sends Spade the data in real time. That transaction is linked with a verified merchant identity and sent back to the issuer with information on who the merchant is, the category and geolocation details, in real time.

Fast-forward to now, and the company is still returning that comprehensive merchant profile. It is also doing it at a rate of under 50 milliseconds with 99% accuracy, which MacTavish told TechCrunch made Spade an industry leader. The average is around 250 milliseconds.

That gives Spade’s customers, including Mercury, Sardine, Ramp and Unit, the ability to have the most accurate data needed to authorize transactions quickly, create innovative card products and enhance fraud detection, in some cases by more than 15%. 

So what?

It’s always fun seeing a fintech infrastructure company that has built a broadly useful product (like transaction enrichment) find a specific use case or niche and double down on it.

Transaction fraud in the credit card space is an interesting one.

It’s a massive problem (hundreds of millions of consumers have their cards used fraudulently every year), but that also means that the problem is one that has already attracted a lot of solutions, from specialty providers like Feedzai and Featurespace to very experienced and entrenched generalists like FICO and ACI Worldwide.

If Spade wants to jump from fintech clients to large bank clients (and it should), it’ll need to find a compelling differentiator against those incumbents.

My best guess is that Spade will focus on the value of certainty (linking transactions to verified merchant identities) in detecting fraud, compared to legacy providers, which have built incredibly sophisticated fraud detection analytics on top of less-than-perfectly-reliable data.

I also wonder if Spade will consider partnering with one or more of those legacy providers or if it’ll choose to go head-to-head.   

#2: Making the Jump from Recovery to Collections

What happened?

A fintech infrastructure company focused on debt recovery raised a Series B:

January Technologies, Inc. (“January”) announced that it has raised $12 million in Series B financing, preempted and led by existing investor IA Ventures. Existing investors Brewer Lane Ventures, Third Prime, and Reciprocal Ventures, along with new investors such as Upper90, Shrug Capital, and numerous strategic angel investors, joined IA Ventures in the current round. The current round follows January’s $10 million Series A fundraise in 2022.

January is a fintech company humanizing debt collection, helping borrowers regain financial stability while driving creditors to modernize collections. January’s debt resolution platform rehabilitates relationships with borrowers, drives net recoveries, and reduces risk. January works with leading banks, credit unions, debt buyers, and fintech lenders. Ultimately, January is building the single platform for creditors to address all of their collection and recovery needs. 

So what?

Couple thoughts on this one:

  • I’m happy that January was able to raise a Series B. We are a very long way away from me writing, “Ugh, another fintech company focused on debt collection and recovery.” The collections industry is still, by and large, in the Dark Ages and we need all the consumer-focused fintech innovation in this space that we can get.
  • I haven’t seen any information on the valuation that January raised at (for either its Series A or Series B), so it’s a bit hard to judge its progress on the business front. I will say that a $12 million Series B, following a $10 million Series A and being led by existing investors rather than new investors, doesn’t feel great. January did disclose that it quadrupled its revenues and client count over the last 20 months or so, and its client portfolio includes top-20 card issuers, publicly traded fintechs, and top-10 credit unions. However, without knowing the exact revenue or client numbers (or client names), it’s hard to assess the quality of those claims.
  • Today, January is focused on debt recovery, working on behalf of lenders (and debt buyers) to recover as much of the charged-off debt that consumers owe them as possible and being paid on contingency. This is a logical place to start. Fintech companies competing with legacy collections agencies to maximize consumer repayment without pissing anyone off or breaking any laws would be like my brother and I competing with a Neanderthal at Mario Kart. Not a fair fight. The more difficult prize is selling software to banks and other lenders for their use in early and late-stage collections for consumers who are delinquent but not yet charged off. This is a much bigger market that lends itself better to the revenue multiples that tech VCs expect, but it’s also a much more difficult sale and a much more challenging competitive environment. We’ll see if January can crack it.

#3: Premium Banking APIs 

What happened?

Necto, a fintech infrastructure company in the corporate banking and treasury space, just raised a seed round and launched publicly:

Necto is launching its multi-bank Premium API aggregator to power treasury, finance and payment platforms. Banks developed basic APIs for retail accounts, however complex corporate banking relationships can only be served by feature-rich “premium APIs”. Necto’s API aggregator homogenizes the various corporate bank API standards into a single, unified, secure, and easy to integrate format.

The average multi-national corporation maintains more than 20 banking relationships, which makes it difficult for corporate treasurers to gather real-time information on balances, transaction visibility, and payments. Necto enables an integrated system to synchronously look across all accounts at different banks, transforming how cash management decisions are made and leading to more efficient and safer treasury operations.

The company also announced an $8m seed round with participation from leading global enterprise fintech investors, including Nyca Partners, Point72 Ventures, Vine Ventures, Avenir Growth, Communitas Capital, Edison Partners and AFG Partners.

So what?

These are not your regular old bank APIs. No no no. These are premium bank APIs!

[Mona-Lisa Saperstein voice]: Money, please!

Jokes aside, this is quite interesting.

In the age of consumer-focused open banking regulation, you’re never going to make much money just by aggregating consumers’ bank transaction data (hence why companies like Plaid are expanding into areas like lending and fraud prevention).

Data aggregation in the world of commercial banking is different. The systems that you are trying to pull data out of are vastly more varied and complex than they are on the consumer side. Indeed, many large commercial banks have already created suites of APIs to facilitate access to their own data and services for their large corporate clients. However, as Necto’s press release noted, the challenge is that the average multinational corporation maintains more than 20 banking relationships, which means that someone needs to aggregate all of the proprietary bank APIs into a single multi-bank API. The Treasury and IT teams at large multinational corporations don’t want to do that. The big ERP system providers (SAP, Oracle, etc.) probably should have been doing that already, but they dropped the ball.

Enter Necto.

The only thing that’s weird here is that Necto is apparently being spun out of Finlync, which is a fintech company founded in 2015 to do very similar stuff (and backed by the same investors) until earlier this year when they seemingly shut down and all of their employees left? I don’t know. Finlync’s website isn’t accessible at the moment, and while some Finlync employees appear to have ended up at Necto, Necto’s new CEO, Guido Schulz, appears to have no prior connection to Finlync.

If someone can explain the connection here and what’s going on at Finlync these days, I would appreciate it!

2 Fintech Content Recommendations

#1: Why This CEO Thinks You Should Ditch Your Credit Cards (by Sonali Basak, Bloomberg) 📚

An interesting interview with Max Levchin, CEO of Affirm.

Sentiment on Affirm has swung wildly over the last year or so as the company has adapted to a higher-rate environment, but I’ve been consistently impressed with the company’s execution. This interview is a useful window into Levchin’s thinking.  

#2: The Token Layer Cake (by Chuck Yu, Fintech Brainfood) 📚 

Chuck Yu, who is the CEO of Very Good Security by day, did an excellent job moonlighting as a tall British fintech analyst in this Fintech Brainfood essay.

The development of tokens and tokenization is one of those things that we tend to take for granted, but it’s actually a massively important development within payments (and the financial services industry more broadly). 

Chuck’s rant on the subject is an excellent primer.

1 Question to Ponder

What are the most important implications for the financial services industry if generative AI and large language models are successful at radically shrinking the cost structure of operating a bank?